AKRON (May 5, 2003)—After years of steadily increasing concentration of commercial tire distribution resources in the hands of the Big 3 tire makers and Bandag Inc., the balance of power has begun to swing back ever so slightly into the hands of the independents.
The most obvious example of this is Bandag's recent sale of a third or more of its Tire Distribution Systems (TDS) L.L.C.'s network of stores and retread plants.
Seven years after redrawing the U.S. commercial tire distribution map with the creation of TDS, Bandag again is at the center of a redistricting movement, this time as the seller of dozens of stores and retread plants.
After steadily building TDS' reach from its inception in mid-1997 through the beginning of last year, Bandag began selling locations back to dealers, starting last September with three locations in Georgia to Commercial Group Inc.
The sell-off gained momentum in early November with the sale of four outlets and a retread plant in Alabama to McGriff Industries Inc. of Cullman, Ala., a one-time Bandag franchisee that essentially took over all of TDS' business in Alabama.
And more recently, Bandag/TDS sold 25 commercial tire outlets and 12 retread plants in Arkansas, Louisiana, Mississippi and Tennessee in three separate transactions. The divestitures represent more than a third of TDS' annual sales of $365 million.
Despite the wave of divestitures, though, “Bandag is committed to TDS as it provides coverage and capabilities vital to the strength of the Strategic Alliance,” said Martin Carver, Bandag chairman and CEO, referring to the company's nationwide fleet support program.
“Fleet customers count on Bandag to have the coverage in place to serve their tire system needs,” he said. “This objective is accomplished through independent dealers and TDS locations.''
Goodyear also has turned over some of its commercial distribution assets to independents, albeit on a much smaller scale and balanced to a degree by an acquisition or two.
This shift in approach to the market comes at a time of rebounding demand in North America for medium truck tires and continued growth in freight haulage by the trucking industry.
According to the Rubber Manufacturers Association's latest data, replacement market shipments of medium truck tires grew 8.2 percent last year, to 14.7 million units, and tread rubber consumption was up 1.4 percent. Both production by North American manufacturers and imports were up last year.
Demand for new truck tires is expected to continue to grow this year by about 2 percent to 15 million units, the RMA said, citing an expected rebound in industrial production.
At the same time, though, the continued consolidation in the trucking/transportation industry and increasing competition from other retread suppliers has continued to place pressure on the price of retreads, according to Bandag, which also noted that national account business continues to grow for most dealers.
Through August last year, the industry's adjusted truck tonnage index was running nearly 10 percent ahead of 2001, although the record shipping in July was sandwiched between dips in June and July, according to the American Trucking Associations data. At that same time, the National Association of Purchasing Managers index suggested a slackening in industrial activity, as the September index fell below the association's threshold for growth.
The competition for business also has led to the practice of retread industry suppliers providing financial assistance to their dealers to continue the supply of retreaded tires and services to these accounts. Bandag said in its 2003 financial accounts that national account fleet business accounted for 29 percent of the tread rubber it sold in 2002, up from 28 percent in 2001 and 26 percent in 2001. Bandag said in the same report it provided $21.3 million in fleet subsidies last year, up 12.3 percent from 2001, which in turn was nearly 15 percent ahead of 2000.
Among the individual companies that make up Tire Business' Top 35 (actually 36 this year, owing to a tie for 35th) North American Commercial Dealerships, 23 reported increased sales in 2002 vs. 2001, while only five reported lower sales. Collectively, the $2.2 billion in sales reported by the top 35 dealerships was 7.6 percent ahead of the collective sales figure a year ago.
In spite of the growth of independents, the tire makers' own distribution networks still are larger than even the largest independent and continue to exercise considerable influence in the marketplace—especially in the area of pricing, where independents almost universally decry the downward pressure the captive chains exert.
“There appears to be no bottom on prices/price support from hungry manufacturers to get a sale,” said Charlie Allfrey, vice president of Phelps Tire Co. Inc., a four-outlet dealership in Seattle, summing up the feelings expressed by a number of other dealers in their TB survey responses.
“Prices need to stick!” wrote Bob Schwenkfelder, president of Commercial Tire Inc. in Boise, Idaho. “We are selling a better product for less today.”
Prices have edged up, at least on an indexed basis, according to the Labor Department's Producer Price Index. The prices of truck and bus tires, including those for off-highway, jumped 2.1 percent in September 2002 from 2001 levels, although the September prices were 0.1 percent below those in August, the index showed.
Specifically, most tire makers announced price increases of 3 to 5 percent late last year or earlier this year, causing the inevitable surge in orders in the last month before the increases took effect.
The inability of dealers to raise prices had a direct effect on their bottom line, as nearly all dealers indicated their costs—in particular insurance and energy—have risen and continue to rise.
Bridgestone/Firestone continues to operate the largest commercial distribution network, with 145 outlets across the U.S.—primarily doing business as GCR Truck Tire Centers—and about 40 more in Canada. The addition in 2001 of Olson Truck Tire Centers added more than $40 million in sales to the company's reach.
Wingfoot Tire Systems L.L.C., Goodyear's soon-to-be wholly owned commercial subsidiary, reports an estimated $600 million in sales from its 171 outlets. In the past 18 to 24 months, Wingfoot has consolidated and streamlined operations, selling a number of outlets and retread plants and closing some others as well.
Tire Centers L.L.C., Michelin North America Inc.'s commercial distribution and retreading arm, continues to expand steadily, adding four outlets last year, while it plans to open its 14th retread plant later this year. Its 125 outlets generate an estimated $385 million in sales.
Taking into account its recent divestitures, Bandag's TDS unit is operating at a pace to report about $250 million in sales this year, according to its first quarter results.
Of the brands sold by the leading commercial dealerships, Michelin was listed by 30 of the top 36 dealerships, followed closely by Bridgestone and Firestone at 29 and 25, respectively. Yokohama was the fourth most popular, with 22 dealerships selling that brand, then came General with 19, BFGoodrich and Continental at 17 each, Goodyear with 12 and Kelly with 10.
All of the dealerships ranked do their own retreading as well, with 24 of the 36 operating Bandag plants. Six are Michelin Retread Technologies Inc. franchisees and five operate plants with materials and processes from Oliver Rubber Co.—but only one of these, Pete's Road Service in Fullerton, Calif., is exclusive with the Cooper Tire & Rubber Co. subsidiary. Four are affiliated with Goodyear.
Both Goodyear and Continental Tire North America Inc. have launched new medium truck tire lines recently in bids to improve their market presence.
Continental is pinning its hopes on a line of tires designed for the North American market to help it improve its Conti-brand market share by 1.5 points to 4 percent within five years, and its overall market share—covering the Conti, General, Semperit and associate brands—by more than a point to 10 percent.
Goodyear's new offering is its G395 LHS commercial long-haul steer tire, a product so key to the company's success in the medium truck market it's being offered with a seven-year, three-retread, unlimited-mileage warranty on the casing.
Cooper Tire said sales of its radial medium truck tires increased by 22 percent in 2002, reflecting its efforts to focus on increasing its penetration of the market.
The top 10 dealerships in 2002 were the same as in 2001, albeit shuffled somewhat.
Wearing the polka dot jersey symbolic of the best climber was Tirecraft Auto Centers Ltd. of Sherwood Park, Alberta, which jumped to sixth from 10th on the strength of 47.3-percent growth in commercial business, largely attributable to the acquisition of Attersley Tire in late 2001.
Reflecting the overall business growth trend, Parkhouse Tire Inc. of Bell Gardens, Calif., fell to ninth from sixth despite increasing sales last year over 2001.
New to the rankings this year are: Boulevard Tire Center in Deland, Fla., which debuts at No. 14 with commercial-related sales of $49.5 million; Pete's Road Service of Fullerton, Calif.; Commercial Group of Forest Park, Ga.; and Good Tire Service of Kitanning, Pa. None of these four participated previously in Tire Business' annual survey.
Two dealerships that will be part of the top rankings next year will be Southern Tire Mart L.L.C. in Columbia, Miss., and Trans American Holdings L.L.C. in Fort Smith, Ark.—dealerships that recently bought multiple stores from Bandag's TDS unit.
Southern Tire Mart principals Thomas and James Duff anticipate first year sales for their revived company—covering seven stores and three retread plants each in Louisiana and Mississippi—will be in the $60 million to $65 million range. An option to buy 10 more outlets and five retread plants in Texas 18 to 36 months down the road would result in about $15 million more in annual sales, they said.